Introduction

As part of the implementation of the Directive 2011/61/EU on alternative investment fund managers (AIFMD), a new regulated investment vehicle, called “società di investimento a capitale fisso”, or SICAF, has been introduced in Italy.

Under the AIFMD and Legislative Decree 58/1998 (known as the Unified Financial Act, or UFA), a SICAF is a close-ended alternative investment fund, that is, it is a scheme established as joint stock company with fixed capital and a registered office in Italy, having as its sole commercial purpose the investment of assets obtained through the issue of shares (or other equity instruments), among a number of investors, managed as a whole in the interest of its investors and independently from them. It invests mainly in real estate on the basis of a pre-determined investment policy.

This article provides a brief outline of the key characteristics of the SICAF, with a focus on those that invest mainly in real estate, and their marketing procedures. It should be noted that the law in this area is currently in flux due to the ongoing implementation of the AIFMD, and new regulation is expected shortly. Thus, the following is an overview of the Italian laws and regulations that are expected to come into force in the next few months. 

Key characteristics of Italian real estate SICAFs

The establishment of a SICAF must be authorized by the Bank of Italy.

A SICAF whose shares can only be offered to professional investors and qualified investors (including, among others, stockbrokers and foreign persons authorized under their home state regulations) is classed as “reserved”, as opposed to the “retail” SICAF, whose shares can be offered to any investor and may also be listed on a regulated market.

The SICAF can manage its assets itself, or appoint an external manager. Other entities involved in a SICAF’s operations include, among others, a custodian bank, which is required to hold cash and the financial assets of the SICAF, in order to safeguard the investors’ rights and property, an auditor to certify its accounts and any independent experts who may be appointed to provide valuations of real estate.

SICAFs above and below threshold

SICAFs may be described as either above threshold or below threshold.

Under the UFA, SICAFs below threshold are those reserved SICAFs:

  1. whose assets under management do not exceed EUR 100 million; or
  2. whose assets under management do not exceed EUR 500 million, provided they are unleveraged and that the investors’ right of redemption may not be exercised for a period of at least five years from the date of initial investment.

Reserved SICAFs below threshold are subject to slightly less onerous regulatory requirements than those which apply to SICAFs above threshold. 

The authorization procedure

SICAFs are authorized by the Bank of Italy, in consultation with Consob. The authorization procedure must generally be completed within 90 days, though the period may be suspended where additional documentation is requested. The following conditions for authorization must be met:

  1. the entity must be a joint stock company; 
  2. it must have a minimum initial share capital of at least EUR 1 million (EUR 500,000 for reserved SICAFs, and EUR 50,000 for SICAFs below threshold); 
  3. its registered office and the head office must be in Italy;
  4.  its sole commercial purpose must be the collective investment of assets obtained through the offering of its shares and other equity instruments;
  5. its founding shareholders and the management team must meet the integrity requirements established by the Ministry of Finance, in consultation with the Bank of Italy and Consob. 

The application for authorization must include details of the SICAF’s proposed activities, its plans for development, its objectives and a report outlining its administrative structure. 

Reserved SICAFs are subject to a less onerous evaluation procedure than that which applies to retail SICAFs. Once authorization is given, the SICAF must commence its activities within one year.

Investment activity

SICAFs must be managed in accordance with a predetermined investment policy and, when they invest mainly in real estate, must typically comply with the following investment limits:

  1.  They must invest an amount equal at least to 2/3 of their total value (which may, in certain circumstances be reduced to 51%) in real estate, rights in rem on real estate assets, equity interests in real estate companies and other real estate AIFs (these are known as “qualifying assets”).
  2.  They may invest the remaining 1/3 of their total value in assets other than qualifying assets (for example, listed or unlisted financial instruments, in compliance with the relevant general prohibitions and investment limits provided by law).
  3.  They can invest in receivables relating to their own assets, meaning that they can lend money to third parties.
  4.  They cannot carry out any direct building activity.

Risk concentration limits and leverage

Under the Bank of Italy’s new draft Regulation on collective asset management, SICAFs must comply with certain risk concentration limits. Reserved SICAFs may derogate from these limits, but even in these cases, a de facto minimum level of diversification of risk (based on the characteristics of the portfolio assets) must be ensured.

In terms of leverage, the Regulation provides that retail SICAFs must limit leverage to a ratio between total indebtedness and NAV not exceeding two, while no specific limit to the use of leverage is provided for reserved SICAFs. However, if the reserved SICAF consistently uses leverage (that is, the ratio between total indebtedness and NAV is higher than three), the Bank of Italy will step in to evaluate the adequacy of the SICAF’s internal structure and risk management, and the potential impact of leverage on its financial stability.

Shares in a SICAF

Share purchase in a SICAF is subject to oversight by the Bank of Italy. There must be a plurality of investors but, under the Regulation, this requirement is met even where only one unitholder exists, provided that its investment is in the interest of a plurality of investors (for example, in the case of a fund of funds), or that the marketing of the shares in the SICAF was directed to a potential plurality of investors.

Where a reserved SICAF wishes to market its shares, notification must be sent by the intermediary to Consob, including a covering letter, outlining the SICAF’s activities; a copy of its by-laws; and other information, including a description of how the SICAF intends to avoid marketing its shares to retail investors. Marketing may only commence on receipt of Consob’s approval (to be issued within 20 business days).

Similar restrictions apply to the marketing of a retail SICAF’s shares. They must also notify Consob and provide information on their activities. Again, marketing may only commence on receipt of Consob’s communication (to be issued within 10 business days—the shorter term reflects the less onerous authorization procedure).

Retail SICAFs wishing to trade their shares on a regulated market must issue a prospectus. This is also subject to Consob’s approval. Admission to trading is subject to authorization by the Italian Stock Exchange (Borsa Italiana) and is regulated by the Exchange.